Fitch Ratings made downward revisions to its rating outlooks for a handful of U.S. consumer lenders on Wednesday, citing the threat that the coronavirus pandemic poses to their revenues and profits.
On the list were the credit card issuers American Express, Capital One, Discover Financial Services and Synchrony, and the student lender Sallie Mae. All five companies' rating outlooks were revised from "stable" to "negative."
Fitch also downgraded the student lender Navient, and it put the auto lender Ally Financial on "ratings watch negative."
Fitch said that it expects near-term revenues and profits in the sector to be “severely impacted” by declines in purchase volumes and loan origination volumes, as well as by waivers of late fees.
To cite one example of the pandemic’s short-term impact on lenders: Consumer auto loan applications at Ally fell by approximately 50% in the second half of March. The decline in loan applications may persist until the virus is sustainably contained, the Detroit-based company said Tuesday in a regulatory filing.
Over the last month, consumer lenders have been granting forbearance to large numbers of borrowers affected by the global health crisis. By late April, Sallie Mae’s forbearance rate for private student loans
While forbearance should mitigate defaults by consumers who regain employment, it could also delay losses for those borrowers who remain out of work for a longer period of time, Fitch said Wednesday.
New York-based Fitch is currently projecting that the U.S. unemployment rate will climb to 14% in the second quarter of this year. Joblessness will subsequently decline, but next year it will still be at nearly twice its pre-crisis level, the firm projects.
“Fitch believes credit performance for consumer finance companies could potentially deteriorate rapidly,” the ratings firm stated, “particularly if displaced workers are unable to secure employment and businesses cannot resume operations once the economy reopens.”
The seven companies listed Wednesday are only the latest lenders to see their ratings come under pressure amid evolving assessments of the pandemic’s likely financial impact. Just this week, Fitch has made negative revisions to its ratings outlooks for U.S. Bancorp, Truist Financial, Fifth Third Bancorp, Zions Bancorp., M&T, KeyCorp and Huntington Bancshares, and it has downgraded Comerica.
And on Tuesday, Moody’s Investors Service made a downward revision to its outlook for subprime consumer lending companies, a category that includes payday lenders and auto title lenders.
Over the next several quarters, subprime consumer lenders are likely to see lower loan origination volumes, in part because of tighter underwriting guidelines, as well as more bad loans, Moody’s said.
Correction: An earlier version of this article stated incorrectly that all seven consumer lenders were downgraded by Fitch. The article has been corrected to include the specific actions Fitch took with respect to each of the lenders.
